You might have thought that the question of why HMRC require people to file self-assessment tax returns is a rather odd one. So that they know how much tax to collect, obviously?
Well, it’s not quite that obvious, as is evident from the Upper Tribunal decision in Goldsmith [2019] UKUT 0325 (TC).
Mr Goldsmith was an employee. Like most employees, he wasn’t normally asked to file a tax return. What happens in such cases is that at the end of the year, HMRC produce a document called a P800 comparing the tax you have paid under PAYE with the tax you ought to have paid. If you’ve overpaid tax, you get a repayment; if there’s an underpayment, it’s usually collected through PAYE by adjusting your tax code.
Sometimes (as was the case for Mr Goldsmith) the underpayment is collected directly, either in one sum or by instalments. But because the P800 is not technically an assessment, there is difficulty in enforcing payment if (as in the case of Mr Goldsmith) the tax isn’t paid.
HMRC’s most obvious recourse would be to issue a formal assessment. But that isn’t their practice in such cases. Instead they sought to resolve the difficulty by sending Mr Goldsmith a formal notice to file a self-assessment tax return for 2011/12 (and for 2012/13, where a similar problem arose). Mr Goldsmith failed to do so. HMRC charged him penalties for his failure. Mr Goldsmith appealed.
The grounds of the appeal were simple. HMRC can issue a notice requiring a return only if it is “for the purpose of establishing the amounts in which a person is chargeable to income tax and capital gains tax”. Mr Goldsmith’s case was that they already knew (having done the P800 exercise) “the amounts in which [he was] chargeable…”. You can’t issue a notice “for the purpose of establishing” something you already know; the notice was therefore invalid; and there could be no penalty for failing to comply with it.
The First-tier Tribunal had accepted Mr Goldsmith’s argument. HMRC appealed to the Upper Tribunal, where they advanced two arguments.
The first was that the FTT lacked the jurisdiction to consider the purpose for which the notice requiring a return was issued: it was enough that the notice had in fact been issued. This is a startling assertion which was, happily, rejected by the Upper Tribunal: the FTT was entitled to consider whether the notice was validly issued, and the purpose for which it was issued was fundamental to that question.
However, the Upper Tribunal accepted HMRC’s other argument: “establishing” meant more than merely “calculating”: it had a wider meaning of securing, fixing or making permanent and was apposite to include issuing a notice with a view to creating (via the self-assessment) an enforceable debt. The notice was valid, having been issued for a legitimate “purpose”, and Mr Goldsmith’s penalties were correctly charged.
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This article was also published in Tax Journal Issue 1466 and is available on the Tax Journal website here.